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Mayoral candidates and the residential exemption

2013 October 21

by Emily Costello

This week’s question for incumbent mayor Setti Warren and challenger Ted Hess-Mahan concerned the ‘residential exemption’ — a property tax break for homeowners that’s in place in 13 communities around Massachusetts.

I was asked about this proposal and like the two mayoral candidates I have taken the position of “More Study is Needed”. This proposal works best in communities that have a high percentage of renters and commercial properties. I was surprised that Newton’s percentage of renting households was 35% because I thought it was much lower. However, its commercial property percentage is barely 10% and I find that very easy to believe. I think former Newton Mayor Tom Concannon (D-Newtonville) said it best when he said that Newton goes out of its way to be hostile to the business community.http://www.wickedlocal.com/newton/news/x784972242/Now-what

This is where devious ideas and local govt meet in dark alleys. Here we have a pricing concept where currently the customer with a $2mm home pays four times the service fee (tax) as the $500k home for the same services. Then comes the idea that we’ll transfer even more to the $2mm home, benefiting the other customers. If any other industry came up with such an idea, the backers would go to jail.

The idea is clearly to pave the path to more overrides such that the squawk from the $500k customer is reduced and the $2mm customer again seems out of line when they object to higher taxes.

Hoss, it was the people in the $1 Million and up homes that were pushing the override whereas the $500 thousand and under homes were opposed to it. Jeff Seideman sold his house for $1.4 Million three months after he got his override.

A residential exemption makes assumptions about the wealth/income about those who own high value vs lower value property that may not be correct! I think it’s totally unfair to shift the RE tax burden to those who own higher value properties.

@hoss,
I’m neither a supporter nor opponent to this proposal put forth by Ted Hess-Mahan [and another alderman?] for Board and mayoral consideration.

You flag one possible motivation for this push, but there are other legitimate arguments i’m sure, for and against. Thus, it’s important that this be thoroughly vetted, hopefully leading to a full understanding of its virtues and failings. Whatever the outcome, you can be sure not everyone will be happy.

Dan Fahey — To be clear, I was attempting to express my opinion on the concept, not a campaign. Sorry if my comment seems insulting to anyone. In my personal situation, I would benefit from this change. I would effectively be handing over part of my current tax bill to the nearest expensive home and thanking them for taking care of it. I can’t in good conscience do that, particularly when property taxes are currently baked in favor of my situation and not theirs.

I should add that this exemption is of course not a Newton invention. It is an something allowed by the Commonwealth but only if the municipality proposes it on both the administrative level (a mayor in our case) and on the legislative level (alderman), then they convince the Commonwealth (State legislators, I assume) that it would benefit the taxation distribution locally.

@hoss,
I didn’t take your comments as insulting at all.
Here’s a line of thought though. Property taxes are considered a bit regressive, as the same rate applies across the spectrum of property values. If one has a desire to somewhat mitigate that, a small residential adjustment [I’m arbitrarily using 5% as “small’] could accomplish that goal.
Again, that is only one angle, with a lot of other factors to be considered as well.
For me, though, the bottom line would be, “it’s worth exploring.”

Dan Fahey — The initial investigation might include whether any other situation includes an exemption as small as 5% (or even 10%). Since we need State approval, I’m thinking that if the argument for this isn’t compelling enough to take it to the full exemption, the proposal becomes largely ineffective and ripe for State rejection.

But, Hoss, on what basis do you assume 5% [or 10%] wouldn’t meet state muster? Why would the state care whether it “goes far enough?” After all, striving for a balance as between those that will gain and those that will pay more is an important outcome.

The baseline state law is [up to] 20%, yet they have granted exemptions up to 30% for communities like Cambridge and Boston. So, they’ve found reasons for going above the limit, and the use of the words {up to} suggests that they’d countenance <20%.
To me, the issue should be, "what makes sense for Newton?" And if what makes sense to us doesn't fly with the state, so be it; we'd just drop it.

Dan — I guess I tried too hard to come to agreement (i.e., we investigate). Frankly, people are misunderstanding taxation concepts if they’re saying a flat-rate tax with no adjustments is regressive. A flat rate tax is hugely progressive — it asks a resident with lesser investment to remit four times the amount as the next resident with higher investment for exactly the same services (my $500k and $2mm example).

A flat tax in taxation theory becomes regressive only when adjustments like a tax-cap come into play (the effective rate gets lower the more you exceed the cap). An example of a true regressive tax would be if all homes paid that same dollar figure, which they do not, or if certain adjustments were available to those at the higher end (a so-called “modified flat tax”), which there are none.

Hoss, I referred to property taxes as a “bit” regressive, in that for lower valued homes, the tax “bite” might be slightly more onerous. While it’s not completely accurate to say that owners of lower priced homes necessarily have relatively lower income, that is often true.

Now I get Dan’s point. He’s saying from a home budget perspective, the weight of property tax is more onerous with the smaller home situation (often an older home, with older occupants). Part of the issue there is a generational issue. Newton today gets very little State aid (cherry sheet funds) to offset resident tax burden because the City has become a well-off community. Those that bought in when the City was less well-off are feeling this weight as income reduces at retirement, etc. But this problem is in fact generational — what argument for this exemption will the buyers in Newton over the last two decades have for relief in the future? This is a lasting policy, not a temporary fix

I have said before on other threads, that property tax is regressive. You have a much better approach by instituting a graduated city income tax, and lowering the overall property tax. The income tax will much more accurately peg those who make a lot, regardless of the size house they live in. You will accomplish what you set out to do, by giving seniors on limited incomes and low earners(someone who just lost their job, etc) a bigger break.
It isn’t perfect either, there are drawbacks and inequities, but overall it is a fairer approach. Either way you are going to the legislature for approval.